Currency and Economy News

Welcome to MoneyTransferComparion’s economy and currency news section. Our expert economist will be happy to provide you with a free overview of the most interesting things that happened last week in the world of currencies, as well as a prediction for next week’s happenings.

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In Depth Commentary on Current Events

  1. Our Brexit Survey March 24 – Read for Brexit prediction, by the people and by our experts.
  2. Our UK economy forecast with Boris Johnson as PM
  3. Our “the demise of the pound” series – against the Euro and against the U.S Dollar

Analysis and Prediction:

Date of publication: August 19, 2019 | Author: Tim Clayton

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Last Week’s Summary

World Economic News Review

Trade developments remained crucial

Trade tensions remained a very important market focus during the week with fear initially dominating amid fears over increased tariffs. 

President Trump announced that planned tariffs on some Chinese exports, due to come into effect on September 1st, would be delayed until December 15th. Trump indicated that the move was designed to prevent an impact on seasonal shopping by US consumers, although there markets also assumed that it was designed to rescue equity markets. There was only a slight net easing of fears over the outlook.

The Chinese yuan stabilised during the week which provided an element of relief to global markets, although underlying tensions remain high.

Yield curve in focus 

Interest in the US yield curve is usually confined to market professionals, but this week was one of the times when it attracted wider media attention.

Usually, the yield on long-term bonds is higher than those on short-term bonds to reflect the higher risk.

When confidence in the economic outlook deteriorates, yields on long-term yields tend to decline and the yield curve flattens. 

As fears tended to dominate, there was a sharp decline in long-term yields during the week with markets increasingly fearful of a US and global recession.

The yield on 10-year bonds dipped to 3-year lows near 1.50% and, crucially, declined to below the 2-year yield. This is known as inversion and had not been seen since 2008. The 30-uear yield also declined to a record low below 2.00%.

Historically, a yield curve inversion usually means that the US economy will move into recession within the following 12-18 months. Overall fears over the economic outlook intensified and pressure for substantial Fed interest rate cuts increased.

Defensive currencies remain strong 

Given fears over the global economic outlook, demand for defensive currencies such as the yen and Swiss franc remained strong during the week, especially given the decline in global yields.

US 

The latest retail sales data beat market expectations while two regional business surveys indicated steady conditions, easing immediate fears over the outlook.

US Administration officials continued to lobby strongly for aggressive cuts in interest rates. Federal Reserve officials indicated that further rate cuts were a possibility.

UK

Labour-market data was mixed as unemployment edged higher in the three months to June, but employment strengthened to a fresh record high. Average wages growth strengthened to an 11-year high of 3.9%.

The CPI inflation rate increased to 2.1% from 2.0% and above market expectations of 1.9% while retail sales data was also above consensus forecasts.

The data increased doubts whether the Bank of England would be in a position to lower interest rates over the next few months, especially given that Sterling losses will put upward pressure on prices.

Political developments remained important as attempts by House of Commons members stepping-up efforts to find a way to block any move to take the UK out of the EU on October 31st.

There was a slight shift in sentiment which helped pull Sterling away from 10-year lows against the Euro while there was also a recovery from 3-year lows against the dollar.

Euro-zone

GDP data provided no surprises with the German economy contracting 0.1% for the second quarter while Euro-zone growth was confirmed at 0.2%. 

A closely-watched German investor confidence index declined sharply to the lowest level since 2011 which undermined confidence in the outlook.

Comments from ECB council member Rehn had an important impact. He stated that the central bank should announce a substantial package at the September meeting with cut interest rates and fresh package of government bond purchases. There were assumptions that the comments had been approved by top central bank officials and the Euro declined sharply. 

International

The latest Australian labour-market data was stronger than expected with an employment increase of over 40,000, although risk conditions dominated market conditions.

Next Week’s Forecast & Events

a Men Looking at Economic Forecast

Volatility liable to remain high

This continues to be the peak holiday season for US and European markets with low trading volumes. There is, therefore, also the risk of a lack of liquidity which can amplify market moves as big banks and hedge funds are forced out of positions, especially late in the week with key events scheduled.

Yield trends will remain a key market element

Trends in US and global bond yields will remain important during the week. If longer-term yields recover, immediate fears over the global economy would tend to ease slightly.

Trade and currency rhetoric still potentially crucial

The G7 Summit will be held from August 24-26th. Heads of state and central bankers from the US, UK, Japan, Germany, France, Italy and Canada will be held in France. China will not be at these talks, but rhetoric from President Trump and EU leaders could have important implications given that trade and currency issues will inevitably be discussed. Relations between the US and EU will also have an important impact on Euro sentiment. 

US-China relations will also remain very important during the week with risk appetite improving if there is evidence of any concessions.

US

The Federal Reserve minutes from June’s meeting will be released on Wednesday with markets looking for further evidence on the extent of fears surrounding the outlook and the degree to which committee members expect to cut interest rates.

Commentary from Fed speakers is likely to have a larger impact on market sentiment. In particular, Chair Powell is due to deliver a speech on Friday at the Jackson Hole symposium in Wyoming. Given the importance of Fed policy and criticism of Powell’s recent communication, his comments will be very important for market sentiment towards US interest rates and direction for major currencies. 

Wider commentary during the Jackson Hole event will also be a significant factor for confidence.

What is the Jackson Hole Symposium?

The Jackson Hole event is held annually to discuss monetary policy issues and key central bank officials from the major officials often use the event to drop hints over future policy trends which can move market sharply.

UK

Political factors will remain very important, especially with the G7 Summit starting on August 24th. Prime Minister Johnson is also scheduled to meet German Chancellor Merkel and French President Macron this week ahead of the Summit.

The tone of their rhetoric will have an important impact on market sentiment and the perceived chances of any concessions from the EU. Domestic political manoeuvres will also be very important as parliamentary efforts to block the possibility of a ‘no-deal’ exit continue.

There are no major domestic data releases during the week, but the global risk trends will be important for the UK currency.

Euro-zone

The latest PMI business confidence readings will be released on Wednesday with market expectations of a further slight net deterioration in already very weak manufacturing conditions. Only evidence of a strong recovery would trigger a shift in sentiment.

ECB minutes are due on Thursday and markets overall will continue to monitor rhetoric from central bankers very closely for further evidence on likely announcements at the September meeting. 

International

Latest Canadian inflation data will be released on Wednesday with retail sales scheduled for release on Friday. 

Political protests in Hong Kong will be an important market factor and any violent escalation would trigger a fresh increase in global fears.

Currency Forecast for Next Week

Currency pairSpot 1-week forecast1-month forecast
EUR/USD1.1101.1051.129
USD/JPY106.4107.0105.2
EUR/GBP0.9130.9200.895
GBP/EUR1.0951.0871.117
GBP/USD1.2151.2121.261
AUD/USD0.6780.6820.695
USD/CAD1.3271.3301.310
USD/SGD1.3851.3821.370
USD/HKD7.8447.8457.840
NZD/USD0.6430.6420.660
GBP/JPY129.2128.5132.7
GBP/AUD1.7921.7611.815
GBP/NZD1.8901.8711.911
GBP/SGD1.6831.6601.728
GBP/HKD9.5329.4239.890
GBP/CHF1.1881.1851.235
 timTim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics. 


Information expressed in this article and on MoneyTransferComparison.com as a whole does not constitute as financial advice. If you decide to make any actions based on the information you read, we shall not be held responsible.

 

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